Question: What happens if I open a 529 account for my child, and she later becomes disabled and doesn't go to college?

Answer :

Hopefully this won't happen, but if it does, you have a couple of options. First, you could withdraw the funds from your 529 account and use them for any purpose you choose. Since your child is disabled, you would not owe the 10 percent federal penalty tax that normally applies to non-qualified withdrawals (although you would owe federal, and maybe state, income tax on the earnings portion of the withdrawal). Or, you could leave the funds in the 529 account and change the designated beneficiary to another qualified family member who will be attending college.

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.